It was a mildly positive week for equites with bond yields taking a pause in their steady climb. The standouts have been Bitcoin which broke $100,000 again this week and oil which is moving sharply higher (more on that below).  The Canadian dollar has traded in a tight range despite the ongoing rhetoric between Canada and the US.

 

Index Close Jan. 9th 2025 Close Jan. 16th 2025
S&P500 5,919 5,963
TSX60 25,088 24,810
Canada 10 yr. Bond Yield 3.37% 3.45%
US 10 yr. Treasury Yield 4.69% 4.66%
USD/CAD $1.43773 $1.43966
Brent Crude $77.20 $81.43
Gold $2,669 $2,716
Bitcoin $91,832 $100,245

Source: Trading Economics & Factset

 

US Inflation (CPI) came in in a bit mixed for December. The headline rate was up for the 3rd month in a row at 2.9%, but core inflation came in a bit lower than the prior month at 3.2%. Markets took some heart from these numbers. The question is, will the Federal Reserve also take heart and continue their rate cuts? Core inflation is still well above their 2% target, so a pause in cuts may be warranted.

I am sometimes asked why I focus obsess so much about rates. The easy part of the answer is that they directly effect our fixed income returns. The more complex answer is their effect on the equity markets and really any other asset class, especially real estate.

Interest rates determine the discount we apply to future earnings when calculate the value of an asset (stock) today. The rate generally used for long-term assets is the 10 yr. US Treasury (bond). This present value calculation can be ignored for short periods of euphoria or gloom but will eventually bring the market back to fundamentals and reality. The chart below shows the correlation between the global equity market and the 10 yr. yield. Flat or falling yields are supportive of asset prices while rising rates push valuations down. At the moment, valuations, thanks to the Mag7, appear to be stretched.

 

 

There was good news on the Canadian jobs front in December. We added 91,000 new jobs which brought our unemployment rate down to 6.7%. The jobs were mostly full time and spread out across multiple sectors. This has some economists musing the Bank of Canada may pause its rate cuts. (Good news can be bad news) In the US it was a similar story with 256,000 new jobs created in December. This brought the US unemployment rate down to 4.1%. Note, the Canadian and US unemployment rates use different metrics and are not directly comparable.

Oil has been on the rise thanks to tighter sanctions on Russian exports. The US Treasury has sanctioned a further 183 tankers involved in the Russian oil trade. This has increased shipping costs and will constrict supplies. The story is already playing out at the pumps with gasoline up 10 cents in the past 10 days. For US consumers, this could be exacerbated if the US applies tariffs to Canadian crude. We currently supply 4 million barrels a day to the US.

Social Media app Tik Tok is facing a ban in the US as soon as this weekend. The app, which has 170 million users in the US, is considering several options including a sale to US investors. Leading the charge of potential buyers is Elon Musk. The potential ban has also caused a flood of users to move to Xiaohonshu (Rednote). Not dissimilar to the mover of X (Twitter) users to Bluesky in recent months.

We have all seen the pictures of the incredible devastation caused by the California wildfires over the past few weeks. Canada has sent crews and equipment to help fight the fires. Water bombers from Quebec have been working from the start along with crews and aircraft from Coulson Aviation based in Port Alberni. The damage will also be felt here. Property insurance will become more expensive as insurance companies re-evaluate their risk exposure.

Fighting wildfires is hard, dirty, and often dangerous work. I can attest to that having spent a summer fighting fires in the Bowren Lakes region of BC. With that in mind we will close off with this piece dedicated to the crews….

Russ Lazaruk, RIAC, CIWM, CIM, FCSI 
Managing Director & Portfolio Manager